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Which Global Managers Back the UK?

Opportunistic investors are taking advantage of cheap valuations as the UK remains widely out of favour because of Brexit and growth fears

Annalisa Esposito 18 September, 2019 | 3:48PM

While many investors continue to shun the UK stock market, a number of global fund managers are backing the country. Morningstar data reveals that more than 20 Global Equity funds have at least 20% of their assets in UK equities.  

Concerns about Brexit and stuttering economic growth have put many off investing in the UK in recent months, but some investors say that the market looks to be good value with shares trading at attractive multiples and paying reliable dividends. 

What's more, the UK market has been a ripe hunting ground for talented stock pickers. Indeed, according to the latest Morningstar Active/Passive Barometer, some 78% of UK mid-cap funds have outperformed the market over the past 10 years. 

Global Equity with high UK Exposure

The Baillie Gifford UK and Worldwide fund has the highest exposure to UK equities of all funds in the Global sector, with 54% of the porfolio in British business. For comparison, the UK makes up just 5.7% of the MSCI World index. 

Global Funds' Exposure to the UK

By contrast, the fund is heavily underweight to North America, with just 14.3% of assets invested in the region compared with almost 54% for the index. Baillie Gifford is renowned for taking a bottom-up approach to stock selection, so it says its exposure to the UK is not a macro call but a result of the attraction of specific companies. Among its top holdings are insurance giant Prudential and Guinness-maker Diageo. A further 2.3% of the portfolio is in mining giant Rio Tinto, one of the world's biggest dividend payers

Baillie Gifford Weightings vs Category

baillie gifford

Opportunitistic Investing

Baillie Gifford is not alone in its relatively high exposure to the UK; the BlackRock Global Equity and Royal London GMAP Dynamic funds have 44.2% and 45% of their assets in UK stocks respectively. 

So while higher volatility and a weaker pound is spooking some investors, others are looking at the situation from a more opportunistic angle. "The very fact that the UK market is inherently unloved right now provides value investors with a fantastic hunting ground for opportunities," says Alessando Dicorrado, co-manager of the Investec Global Special Situations fund, which has 23.2% of its assets in the UK. "Unpopularity breeds opportunity," he adds. 

Dicorrado thinks that many domestically focused UK companies look very cheap and offer attractive prospective returns. However, he warns that "selectivity is key". Among his largest holdings are building merchants Travis Perkins and outsourcing firm Capita. While the fund is down 5% over the past year, it is up 17.8% in the year to date. 

The four-star rated Margett Opes Growth fund has 36.8% of its assets in the UK, gaining its exposure by investing through other funds rather than directly into equities itself. Dmitry Konev, senior analyst at Margetts, says that as many large UK firms generate most of their earnings outside of the UK, their profits are less dependent on the leaht of the UK economy.

One major attraction is the strong dividend yield on offer from some of these firms. "A yield of 5% on the FTSE All Share index looks attractive when you consider that 10-year Gilts are yielding 0.6%," he says. 

Ignore Volatility 

Of course, volatility remains a concern for many investors, who don't like to see sharp swings in the value of their porfolio. But Diccorado points out that this is only a risk for short-term investors; if you have a time horizon of five years or more then short-term volatility starts to become less relevant.

"We define real risk as permanent loss of capital. Once you frame it this way, you can ignore short-term volatility and concentrate on long-term gains," he explains. So while UK share price may reflect investors' pessimism in the short-term, over the long-term many won't be affected. 

"Brexit creates a lot of uncertainty which, once it passes, will allow companies to play for the future, increase capital investment and attract new investors," says Konev.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk

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